Abstract
Spatial integration between market locations and production regions is crucial for achieving price efficiency and optimal trade, yet disruptions in transportation, often triggered by natural disasters, can impede this integration. Climate change is exacerbating these events, with an increased occurrence of rainfall significantly affecting ground transportation in various countries. This research quantifies the impact of road disruptions caused by landslides on the price differentials of food products across various markets within a national context. I propose a model that uses a combination of the law of one price and a competition framework where firms decide where to trade. I implement the model in an empirical framework by using comprehensive data from Colombia’s wholesale markets, a routing algorithm that connects origin-destination points of food transportation, information on over 2,000 landslide disruptions, and a shift-share IV approach that leverages landslides as a source of external variation. The main findings reveal that a single road disruption, on average, leads to a decrease in product transportation between 2% and 3% to the affected market. Consequently, this reduction in supply causes an increase in prices ranging between 0.5% and 0.9% over a one-week period. Conversely, unaffected markets experience a weekly price decrease of approximately 0.5% on average due to an influx of goods diverted to those markets. The study reveals significant heterogeneity in the impact of road disruptions, driven by the importance of the disrupted road in common transportation routes and varying market characteristics, such as income levels and product specialization.
